Healthcare Innovation Drives Medical Device Makers To New Highs

Key Points

• Medical products makers Stryker and Boston Scientific are rallying to all-time highs, while sector peer DexCom is forming a constructive base.
• As a whole, the healthcare sector has been rallying in the past month.
• Innovation and the potential for greater adoption of new patient technologies are boosting earnings growth at medical device makers. 
• Analysts are bullish on all three stocks ahead of quarterly earnings reports.

The healthcare sector has been looking fit in the past month, with medical products makers Stryker Corp. NYSE: SYK and Boston Scientific Corp. NYSE: BSX rallying to all-time highs, while sector peer DexCom Inc. NASDAQ: DXCM is forming a constructive base.

All three of those stocks are large caps, and all are part of the S&P 500 healthcare sector, tracked by the Health Care Select Sector SPDR Fund NYSEARCA: XLV. 

In an April 14 report, researcher FactSet said the healthcare sector is among those with the highest percentages of companies reporting earnings above estimates. Although sector earnings are declining versus last year’s first quarter, Wall Street still likes companies that exceed views. 

As a whole, the healthcare sector has a lot going for it, even as it goes through the normal market ebbs and flows. It’s a non-cyclical sector, meaning its services are in demand regardless of the market or economic conditions. 

In a March article, Morgan Stanley’s James Ferraioli underscored broad sector strength. Drilling down to medical devices, he wrote, “Increasingly sophisticated and connected medical devices are driving improvements in convenience and care. For example, wire-free adhesive heart monitors can now capture cardiac data and transmit it to a patient’s doctor, and pacemakers can relay data wirelessly to a patient’s smartphone.”

Here’s a look at three large-cap healthcare growers.

Stryker

If you’ve been to a medical office or hospital anytime recently, you’ve undoubtedly seen some Stryker gear, even if the brand name didn’t register. This is a company that’s been around seemingly forever. 

Stryker, whose market capitalization is $110.14 billion, counts joint replacements, surgical equipment, and medical imaging systems among its most important products.

Earnings growth has bounced back in the past two years, following a decline in 2020 as hospitals curtailed elective procedures. You can track Stryker’s sales and net income growth using MarketBeat’s earnings data for the stock.

Analysts have a “moderate buy” rating on the stock, with a consensus price target of $277.45, a 4.60% downside. With earnings coming up on May 1, it wouldn’t be surprising to see analysts keep existing price targets in place for the moment.

The stock cleared a handle buy point above $280.52 on March 31 and has been in rally mode since then, traveling higher along its 50-day moving average. It’s still in buy range, having risen 3.7% above that point, but investors should use caution ahead of an earnings report, which has the potential to send a stock sharply in either direction. 

Boston Scientific 

Like other medical gear makers, Boston Scientific saw an earnings decline in 2020, but growth resumed in the past two years. Analysts expect earnings to increase by 6% this year, and by another 19% in 2024.

The company has been pursuing a strategy of growth through acquisition. That’s not uncommon in the medical field, where smaller companies develop treatments that are later acquired by larger firms. 

Among Boston Scientific’s key products are devices for cardiology, urology, and endoscopy. Its cardiology products include implantable defibrillators and pacemakers, while its urology products include devices for the treatment of urinary incontinence and kidney stones. Its endoscopy products include diagnostic and treatment devices used in the gastrointestinal tract.

The Boston Scientific chart shows a series of consolidations and breakouts in the past year, leading to a one-year return of 15.91%. In the past three months, shares rallied 10.68%. 

The company reports first-quarter results on April 26, before the opening bell, with Wall Street eyeing earnings of $0.43 per share on revenue of $3.16 billion. Those would be increases on both the top and bottom lines, as you can see using MarketBeat’s earnings data.

Analysts’ consensus rating is “buy,” with a price target of $52.18, an upside of 1.31%. Now that we are in the thick of earnings season, consider very carefully any buy ahead of a report that could move the stock significantly. If it rockets higher after the report, that’s a buy signal, as it generally indicates more upside will follow.

DexCom 

DexCom is a medical device company that specializes in continuous glucose monitoring systems for patients with diabetes. Its most important products are its G6 and G7 continuous glucose monitoring systems, which provide real-time readings and alerts to help people manage their diabetes. 

The ability for patients to continuously monitor glucose levels is an advancement over the old-fashioned finger sticks, which are a hassle and only provide a snapshot. In addition, DexCom's systems provide real-time alerts and trend data, allowing patients to better manage their condition and reduce the risk of glucose fluctuations.

A look at DexCom’s chart reveals a first-stage base that’s been forming since December. The current base undercut prior structure lows. That can be bullish, as it often sets the stock up for bigger gains as investors scoop up more shares at a lower valuation. 

MarketBeat’s analyst data for DexCom show a “moderate buy” rating on the stock, with a price target of $124.06, an upside of 7.24%. 

The current buy point is above $125.55, but as with Stryker and Boston Scientific, it’s very likely that analysts are not updating their targets ahead of DexCom’s April 27 quarterly report. 

Wall Street expects earnings of $0.15 a share on revenue of $730.24 million. 

In a research note last year, Bank of America outlined its bullish case for DexCom. 

“DXCM has durable revenue growth (annuity business model) and is recession resilient,” analysts wrote. They added that they see longer-term potential in the non-invasive Type 2 diabetes patient population and other non-core markets that could significantly increase market opportunity.